Hedge Funds Are Selling Delta Air Lines, Inc. (DAL)

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Delta Air Lines, Inc. (NYSE:DAL).

Is Delta Air Lines, Inc. (NYSE:DAL) undervalued? Prominent investors were getting less optimistic. The number of bullish hedge fund positions dropped by 8 lately. Delta Air Lines, Inc. (NYSE:DAL) was in 50 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 109. Our calculations also showed that DAL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing Delta Air Lines, Inc. (NYSE:DAL).

Do Hedge Funds Think DAL Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2020. By comparison, 53 hedge funds held shares or bullish call options in DAL a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in Delta Air Lines, Inc. (NYSE:DAL), which was worth $195.2 million at the end of the fourth quarter. On the second spot was Lansdowne Partners which amassed $177.8 million worth of shares. PAR Capital Management, D E Shaw, and Hosking Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Delta Air Lines, Inc. (NYSE:DAL), around 5.79% of its 13F portfolio. Covalent Capital Partners is also relatively very bullish on the stock, setting aside 4.58 percent of its 13F equity portfolio to DAL.

Due to the fact that Delta Air Lines, Inc. (NYSE:DAL) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedge funds that elected to cut their entire stakes by the end of the first quarter. Intriguingly, Josh Resnick’s Jericho Capital Asset Management dumped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $49.5 million in stock. Mike Masters’s fund, Masters Capital Management, also said goodbye to its stock, about $20.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 8 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Delta Air Lines, Inc. (NYSE:DAL) but similarly valued. We will take a look at Nutrien Ltd. (NYSE:NTR), Xilinx, Inc. (NASDAQ:XLNX), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Public Service Enterprise Group Incorporated (NYSE:PEG), Chunghwa Telecom Co., Ltd (NYSE:CHT), SBA Communications Corporation (NASDAQ:SBAC), and Skyworks Solutions Inc (NASDAQ:SWKS). This group of stocks’ market valuations are similar to DAL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTR 33 895159 8
XLNX 57 3581332 -9
IBKR 31 1456604 3
PEG 24 287434 -4
CHT 3 153173 -2
SBAC 38 2090468 -5
SWKS 33 765774 -8
Average 31.3 1318563 -2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $1319 million. That figure was $1100 million in DAL’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 3 bullish hedge fund positions. Delta Air Lines, Inc. (NYSE:DAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for DAL is 54.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately DAL wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on DAL were disappointed as the stock returned -6.9% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.